2020 PX market review

I. PX price slumps to record low
With the outbreak of COVID-19 pandemic, prices of petrochemicals plunged to record lows in the first quarter of 2020, as demand evaporated. WTI crude oil futures nosedived to record low of -$37.63/bbl on Apr 20 under supply glut. On Apr 22, Asian PX price slumped to refresh new low of $439/mt CFR China/Taiwan, a whopping drop of 93.6% from $850/mt CFR on Jan 6 2020.

II. PX margins declines to new low
PX margins had been reducing since the last quarter of 2018, as China PX capacity expansion outpaced demand growth in recent years. PX-naphtha spread and PX-MX spread kept shrinking to hit record lows in 2020. PX-naphtha spread dropped to as low as $122/mt on Oct 9, and PX-MX spread to $44/mt on May 29. On annual basis, the average spread of PX-naphtha and PX-MX shrank to $198/mt and $88/mt respectively in 2020, down 48% and 54% year-on-year.

III. Inventory rises to new high
PX capacity has been expanding fast in China in recent years, and thus sufficiency of local supply enhances. In the first half of 2020, China PTA operating rate reduced sharply with the outbreak of pandemic. As a result, PX supply glut swelled on, with inventory increasing by 1 million tons in the first quarter. The increasing in inventory did not halt in Nov. China PX inventory to consumption ration also rose to record high.

Adding to the woes was the dwindling stank storage space with inventory piling up. From the chart below, it can be seen that under high inventory, when there was unplanned PTA plant shutdown, PX-naphtha spread would shrink fast. In Jul, the spread rebounded as naphtha price declined after an accident at a refinery in Taiwan.

IV. China's PX import dependency decreases

China PX imports dropped with continuous domestic capacity expansion in 2020. In Jan-Nov, the imports reached 12.73 million tons, down 7.3% year-on-year. Full-year imports are expected to reach 13.75 million tons in 2020, down 8% on annual basis. The dependency on imports is expected to reduce to 40%, new low since 2011.

In a conclusion, 2020 PX market was impacted by the outbreak of pandemic and also affected by China’s lower dependence on PX imports. In 2021, PX imports are likely to further reduce though PTA capacity growth would outpace that of PX. PX margins could still be under strains.